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1301.0 - Year Book Australia, 2005  
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Contents >> Financial system >> Financial markets

Financial markets are used by participants to either raise funds (e.g. by issuing securities) or invest savings (by buying securities and other financial assets). The major markets in the Australian financial system include the share market, bond market and money market. Descriptions and tables indicating prices and activity in various financial markets are provided in this section.

A significant influence in financial markets is the participation of institutional investors controlling large pools of investment funds. These pools are accumulated by collective investment institutions and are often managed on a fee-for-service basis by investment managers. A summary of the activities of these institutions is also provided.

Credit market

Credit may be defined broadly as funds provided to those seeking to borrow. However, analytically useful measures of credit usually exclude borrowings by financial enterprises because their main role is as an intermediary, that is, they borrow in order to lend. Also, lending and borrowing between enterprises which have a special relationship, such as between companies in the same group or between government agencies, are often excluded from credit measures because transactions between these bodies frequently are of a non-market nature. Similarly, some types of financial instrument, such as trade debts, are not considered to be part of an organised market. All of these types of transactions are omitted from table 26.12, which presents a summary of the demand for credit in Australia by the non-financial sectors. It includes raisings by the issue of both debt and equity securities.


26.12 DEMAND FOR CREDIT(a)

Net transactions during year

2001-02
2002-03
2003-04
$m
$m
$m

Funds (including equity) raised on conventional credit markets by
Private non-financial corporations
27,577
37,214
56,134
National public non-financial corporations
1,191
-2,520
-2,070
State and local public non-financial corporations
1,931
2,298
-941
National general government
-2,615
-5,169
-3,814
State and local general government
-1,281
-166
-2,008
Households
79,099
93,679
115,964
Total
105,902
125,336
163,265

(a) Positive numbers indicate an increase in raisings. Negative numbers indicate repayment or redemption.

Source: Australian National Accounts: Financial Accounts (5232.0).


Table 26.13 shows the growth in household borrowings. The significant growth in demand for credit by households is largely a result of increased borrowing for housing.


26.13 HOUSEHOLD DEMAND FOR CREDIT

Net transactions during year

2003
2004
$m
$m

Households demand for credit
93,679
115,964
Housing
78,102
95,129
Total Authorised Deposit-taking Institutions (ADIs)
62,767
65,153
Owner-occupied housing
35,720
35,682
Investment housing
27,047
29,471
Other lenders
15,335
29,976
Non-housing borrowing
15,577
20,835

Source: Housing Finance, Australia (5609.0).


Stock market

The stock market is a mechanism for trading equities (shares), units in trusts, options, and some fixed-interest securities.

Operated nationally by the ASX, which is responsible for the day-to-day running and surveillance of trading, the Australian system is electronic and conducted using the Stock Exchange Automated Trading System, allowing buyers and sellers to be located anywhere in the country.

The ASX classifies listed companies according to their major activity and produces indexes based on these classifications. Table 26.14 summarises the performance of the major indexes over the past three financial years.


26.14 AUSTRALIAN STOCK MARKET INDEXES(a)

2001-02
2002-03
2003-04

All ordinaries
Index(b)
3,163.2
2,999.7
3,530.3
High(c)
3,440.0
3,205.4
3,549.0
Low(c)
2,867.5
2,673.3
3,266.8
S&P/ASX 200
3,216.0
3,026.9
3,532.9
Banks
5,095.8
4,877.2
4,932.7
Industrials
5,445.7
5,159.0
5,829.3
Resources
1,576.0
1,439.1
2,016.3

(a) Base 31 December 1979 = 500.
(b) Share prices on joint trading floors; June closing value.
(c) Over a 12-month period.

Source: Australian Stock Exchange; Reserve Bank of Australia; Standard and Poor's.


Table 26.15 shows the market value of Australian shares and units in trusts on issue - both listed and unlisted. It shows the amount on issue by sector of issuer and sector of holder of equities and units.


26.15 EQUITY MARKET(a), Amounts on issue - 30 June

2002
2003
2004



Listed
Unlisted
Listed
Unlisted
Listed
Unlisted
$m
$m(b)
$m
$m(b)
$m
$m(b)

Total equities and units in trusts
731,671
732,534
704,492
752,226
864,547
848,790

ISSUED BY

Private non-financial corporations
429,590
177,946
412,544
194,871
540,040
206,462
National public non-financial corporations(c)
59,960
4,854
56,615
4,908
63,522
5,152
State and local non-financial corporations(c)
-
92,131
-
92,062
-
100,307
Central bank(c)
-
11,399
-
11,678
-
12,514
Banks
181,323
8,624
174,080
6,792
182,710
6,399
Other depository corporations
227
25,071
363
33,900
389
36,758
Life insurance corporations
22,457
14,143
11,336
13,583
17,587
13,383
Other insurance corporations
8,905
16,883
14,896
16,120
22,,234
19,108
Central borrowing authorities
-
87
-
30
-
30
Financial intermediaries
29,209
103,400
34,658
108,748
38,065
126,465
Rest of world
-
277,996
-
269,534
322,212

HELD BY

Private non-financial corporations
8,395
159,414
7,198
165,371
12,749
186,856
National public non-financial corporations
-
6,647
-
3,635
-
3,702
State and local public non-financial corporations
-
310
-
279
-
282
Banks
8,812
66,444
10,466
74,206
10,064
78,308
Other depository corporations
-
10,506
353
15,954
123
14,469
Life insurance corporations
58,789
48,687
48,049
54,122
55,857
58,961
Pension funds
104,879
110,988
111,117
113,698
142,409
144,294
Other insurance corporations
4,440
19,705
3,562
17,354
4,851
19,547
Financial intermediaries
61,350
46,105
52,717
49,888
76,317
61,394
National general government
30,040
16,541
28,365
16,881
31,222
17,968
State and local general government
-
92,371
-
91,655
-
101,940
Households
167,757
88,808
145,410
83,312
182,168
79,999
Rest of world
287,209
65,966
297,255
65,865
348,787
81,080

(a) Includes units in trusts.
(b) The unlisted estimated market values are considered to be of poor quality unless based on net asset values. They should be used cautiously.
(c) Net asset values.

Source: Australian National Accounts: Financial Accounts (5232.0).


Money market

Liquidity management by Australian corporations, financial institutions and governments is conducted through an informally arranged market for deposits, loans and placements and by issuance, purchase and sale of short-term debt securities. Rates in the market at end June of the past three years are shown in table 26.16.


26.16 SHORT-TERM MONEY MARKET RATES - 30 June

2002
2003
2004
% p.a.
% p.a.
% p.a.

11 am call
4.72
4.75
5.25
Bank-accepted bills-90 days
5.07
4.67
5.49

Source: Reserve Bank of Australia.


Money market securities have an original term to maturity of less than one year, often 30, 90 or 180 days. They are issued by borrowers at a discount to face value and carry no income payment other than the repayment of face value at maturity. To enhance liquidity, money market securities conform to standardised attributes concerning risk and discount rates. Because of the standardisation, the securities of different issuers are often combined in the one parcel of securities for trading purposes. There are two types of securities: bills of exchange and one name paper (promissory notes, treasury notes, commercial paper and bank certificates of deposit), both of which are covered by the Bills of Exchange Act 1909 (Cwlth). The risk of default of a bill of exchange is reduced by an acceptor or endorser adding their name to the security for a fee.

Most bills of exchange traded in the market are bank-accepted bills. Promissory notes are issued by institutions whose credit worthiness is equal to or better than banks; they are not accepted by a bank and unlike bills of exchange they are not endorsed by the parties which sell them in the market. The Australian Government issues treasury notes, state governments and large corporations issue commercial paper and banks issue negotiable certificates of deposit. Table 26.17 shows the amount on issue by sector of issuer and sector of holder of the various types of money market securities.


26.17 SHORT-TERM DEBT SECURITIES, Amounts outstanding - 30 June

2002
2003
2004
$m
$m
$m

ISSUED BY

Private non-financial corporations
77,436
74,657
75,176
National public non-financial corporations
2,637
2,104
2,374
State and local public non-financial corporations
-
2
10
Banks
102,938
136,440
179,835
Other depository corporations
51,580
37,063
26,501
Life insurance corporations
452
4
1,336
Other insurance corporations
62
121
186
Central borrowing authorities
8,643
8,650
6,905
Financial intermediaries n.e.c.
22,799
23,431
26,533
National general government
4,477
246
221
Households
8,923
10,537
12,667
Rest of world
2,690
2,912
3,858
Total
282,637
296,167
335,602

HELD BY

Private non-financial corporations
20,249
27,405
29,116
National public non-financial corporations
797
495
183
State and local public non-financial corporations
126
36
7
Central bank
1,897
549
4,619
Banks
70,312
73,538
91,933
Other depository corporations
34,464
39,057
38,562
Life insurance corporations
15,810
17,916
18,634
Pension funds
17,165
22,060
26,040
Other insurance corporations
5,526
7,101
6,968
Central borrowing authorities
9,909
11,818
14,666
Financial intermediaries n.e.c.
17,483
15,635
18,502
State and local general government
533
209
208
Households
8,586
8,557
8,007
Rest of world
79,780
71,791
78,157
Total
282,637
296,167
335,602

Source: Australian National Accounts: Financial Accounts (5232.0).


Bond market

Bonds are issued with original terms to maturity of one or more years. Usually the investors are paid a set periodic interest, called a coupon, for the life of the bond and receive their initial investment back at maturity. Some bonds have variable interest rates, some have principal repayments indexed, and there are small amounts of zero-coupon or deep discount securities which are issued at a discount to face value. Governments, trading enterprises and financial institutions issue bonds to finance long-term requirements. For these entities, the bond market generally provides a cheaper source of funds than borrowing from banks and other financial institutions. Table 26.18 shows the market yields at 30 June of the past three years for a range of bonds.


26.18 BOND MARKET, Market yields - 30 June

2002
2003
2004
% p.a.
% p.a.
% p.a.

Treasury bonds
3 years
5.61
4.47
5.43
5 years
5.78
4.71
5.67
10 years
5.99
5.01
5.87
New South Wales T-corp bonds
3 years
5.79
4.64
5.70
5 years
6.04
4.89
5.88
10 years
6.29
5.20
6.05
Finance company debentures
2 years
5.45
4.10
5.55
3 years
5.60
4.20
5.65

Source: Reserve Bank of Australia.


Historically, the main issuers of bonds have been the Australian Government and state governments, the latter through their central borrowing authorities. Corporate bonds are issued only by very large private trading and financial enterprises. In recent years banks and asset-backed security trusts have issued increasing amounts as government issuance has decreased. The amounts outstanding on bonds at 30 June of the past three years are shown in table 26.19.


26.19 BONDS, Amounts outstanding - 30 June

2002
2003
2004
$m
$m
$m

ISSUED BY

Private non-financial corporations
Issued in Australia
17,864
22,094
23,817
Issued offshore
32,704
37,438
36,026
National public non-financial corporations
Issued in Australia
4,976
3,013
3,039
Issued offshore
10,708
9,972
9,424
State and local public non-financial corporations
Issued in Australia
2
8
2
Issued offshore
-
-
-
Banks
Issued in Australia
26,735
23,205
31,915
Issued offshore
87,827
90,507
127,022
Other depository corporations
Issued in Australia
11,587
8,471
8,442
Issued offshore
15,269
24,201
23,611
Other insurance corporations
Issued in Australia
127
423
117
Issued offshore
1,817
1,861
1,548
Life insurance corporations
Issued in Australia
1,255
1,257
959
Issued offshore
975
633
385
Central borrowing authorities
Issued in Australia
52,998
56,674
55,474
Issued offshore
17,513
18,924
23,363
Financial intermediaries n.e.c.
Issued in Australia
42,529
51,645
62,896
Issued offshore
37,914
46,106
61,878
National general government
Issued in Australia
64,155
65,120
59,831
Issued offshore
1,449
1,439
1,234
State and local general government
Issued in Australia
306
304
300
Issued offshore
-
-
-
Rest of the world
Issued in Australia
10,776
12,616
29,190
Issued offshore
54,205
58,001
56,883
Total
493,691
533,912
617,356

HELD BY

Private non-financial corporations
7,155
5,818
5,690
National public non-financial corporations
372
124
122
State and local public non-financial corporations
71
26
28
Central bank
38,056
41,749
31,668
Banks
31,708
34,960
42,645
Other depository corporations
20,047
16,627
12,718
Life insurance corporations
39,868
42,620
40,811
Pension funds
47,727
53,461
67,722
Other insurance corporations
21,829
29,015
26,183
Central borrowing authorities
9,443
9,395
9,567
Financial intermediaries n.e.c.
26,514
21,756
22,418
National general government
15
22
16
State and local general government
315
575
705
Households
6,704
5,461
6,915
Rest of world
243,867
272,303
350,148
Total
493,691
533,912
617,356

Source: Australian National Accounts: Financial Accounts (5232.0).


Foreign exchange market

The foreign exchange market is the means whereby currencies of different countries can be bought and sold. In October 1983 the Australian Commonwealth decided to float the Australian dollar, allowing its value to be determined by market forces with few exchange controls and little Reserve Bank intervention. Prior to 1983 the Australian dollar was pegged to a basket of currencies which were weighted according to their trading significance to Australia. Table 26.20 shows the value of the Australian dollar against major currencies at end June of the past three years.


26.20 VALUE OF AUSTRALIAN DOLLAR, Against major currencies - At last trading day in June

2002
2003
2004

United States of America dollar
0.5670
0.6700
0.6936
United Kingdom pound
0.3720
0.4047
0.3851
Japanese yen
68.09
80.44
75.46
Euro
0.5790
0.5907
0.5787

Source: Australian Tax Office.


Currencies are traded for many reasons: because of exporting or importing requirements, investing or borrowing overseas, arbitraging (i.e. taking advantage of short-term discrepancies in rates) or speculating on possible exchange rate movements with a view to making a profit. Table 26.21 shows daily averages of foreign exchange turnover against all currencies.


26.21 FOREIGN EXCHANGE TURNOVER AGAINST ALL CURRENCIES, Daily averages(a)

2001-02
2002-03
2003-04
$m
$m
$m

Transactions by foreign exchange dealers(b)
Outright spot(c)
22,772
30,384
39,440
Outright forward(d)
6,407
7,424
7,675
Swaps
58,404
68,014
78,190
Options
4,832
6,298
7,233
Total
92,414
112,120
132,538

(a) Figures given are the average daily turnover for the financial year.
(b) Australian banks and non-bank financial intermediaries authorised to deal in foreign exchange.
(c) An outright spot transaction is one for receipt or delivery within two business days.
(d) An outright forward transaction is one for receipt or delivery in more than two business days.

Source: Reserve Bank of Australia.


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